The old company remains a jointly-owned subsidiary, with CSX and NS owning respectively 42 percent and 58 percent of its stock, corresponding to how much of Conrail's assets they acquired. Each parent, however, has an equal voting interest. The primary asset retained by Conrail is ownership of the three Shared Assets Areas in New Jersey, Philadelphia, and Detroit. Both CSX and NS have the right to serve all shippers in these areas, paying Conrail for the cost of maintaining and improving trackage. They also make use of Conrail to perform switching and terminal services within the areas, but not as a common carrier, since contracts are signed between shippers and CSX or NS. Conrail also retains various support facilities including maintenance-of-way and training, as well as a 51 percent share in the Indiana Harbor Belt Railroad.

History

Context: 1973–1976

In the years leading to 1973, the freight railroad system of the United States was collapsing. Although government-funded Amtrak took over intercity passenger services in 1971, railroad companies continued to lose money due to extensive government regulations, expensive and excessive labor cost, competition from other transportation modes, declining industrial business, and other factors.[1]

In 1972, Hurricane Agnes damaged the rundown Northeast railway network and threatened the solvency of other railroads, including the somewhat more solvent Erie Lackawanna (EL). In mid-1973, officials with the bankrupt Penn Central threatened to liquidate and cease operations by year's end if they did not receive government aid by October 1. This threat to US freight and passenger traffic galvanized the Congress to quickly create a bill to nationalize the bankrupt railroads. The Association of American Railroads, which opposed nationalization, submitted an alternate proposal for a government-funded private company. Judge Fullam forced the Penn Central to operate into 1974, when, on January 2, after threatening a veto, President Richard Nixon signed the Regional Rail Reorganization Act of 1973 into law.[4] The "3R Act," as it was called, provided interim funding to the bankrupt railroads and defined a new Consolidated Rail Corporation under the Association of American Railroads' plan.

The State of Michigan decided to keep operational the full Ann Arbor Railroad, of which Conrail would run only the southernmost portion. Michigan bought it and the whole line was operated by Conrail for several years until it was sold to a short line.

Operation: 1976–1986

Conrail was incorporated in Pennsylvania on October 25, 1974, and operations began April 1, 1976. The government owned 85% with employees owning the remaining 15%.[10] The theory was that if the service was improved through increased capital investment, the economic basis of the railroad would be improved. During its first seven years, Conrail proved to be highly unprofitable, despite receiving billions of dollars of assistance from Congress. The corporation declared enormous losses on its federal income tax returns from 1976 through 1982, resulting in an accumulated net operating loss of $2.2 billion during that period. Congress once again reacted with support by passing the Northeast Rail Service Act of 1981 (NERSA),[11] which amended portions of the 3R Act by exempting Conrail from liability for any state taxes[12] and requiring the Secretary of Transportation to make arrangements for the sale of the government's interest in Conrail.[13] After NERSA was implemented, Conrail, under the aggressive leadership of L. Stanley Crane[14][15] began to improve and reported taxable income between $2 million and $314 million each year from 1983 through 1986.

Although Conrail's government-funded rebuilding of the dilapidated infrastructure and rolling stock it inherited from its six predecessors succeeded by the end of the 1970s in improving the physical condition of tracks, locomotives, and freight cars, the fundamental economic regulatory issues remained, and Conrail continued to post losses of as much as $1 million a day. Conrail management, recognizing the need for more regulatory freedoms to address the economic issues, were among the parties lobbying for what became the Staggers Act of 1980, which significantly loosened the Interstate Commerce Commission's rigid economic control of the rail industry. This allowed Conrail and other carriers the opportunity to become profitable and strengthen their finances.[16]

The Staggers Act allowed the setting of rates that would recover capital and operating cost (fully allocated cost recovery) by each and every route mile the railroad operated. There would be no more cross-subsidization of costs between route-miles (that is, revenue on profitable route segments were not used to subsidize routes where rates were set at intermodal parity, yet still did recover fully allocated costs). Finally, where current and/or future traffic projections showed that profitable volumes of traffic would not return, the railroads were allowed to abandon those routes, shippers and passengers to other modes of transportation. Under the Staggers Act, railroads, including Conrail, were freed from the requirement to continue money-losing services.

Conrail transfer caboose 18065 brings up the rear of a local freight passing Porter, Indiana, in the early 1990s

Conrail began turning a profit by 1981, the result of the Staggers Act freedoms and its own managerial improvements under the leadership of L. Stanley Crane,[14][15] who had been chief executive officer of the Southern Railway.[17] While the Staggers Act helped immensely in allowing all railroads to more easily abandon unprofitable rail lines and set its own freight rate, it was under Crane's leadership that Conrail truly became a profitable operation. Soon after Crane took office in 1981 he shed another 4,400 miles from the Conrail system in the following two years, which accounted for only 1% of the railroad's overall traffic and 2% of its profits while saving it millions of dollars in maintenance costs.[3] NERSA relieved Conrail of its requirement to provide commuter service on the Northeast Corridor, further improving its finances.

After considerable debate in Congress, the Conrail Privatization Act of 1986 was signed into law by President Reagan on October 21, 1986. However, in August 1986, Norfolk Southern had withdrawn its bid citing Congress delays and taxation changes.[24] The government decided its interest in Conrail would then be sold by the then-largest initial public offering in US history.[25][26][27] The sale was effective from March 26, 1987 when Conrail's stock, worth $1.65 billion, was sold to private investors.[28][29]

Commuter rail operations

Conrail inherited the commuter rail operations of its predecessor lines, and operated them until 1983, when these services were transferred to state or metropolitan transit authorities (except for those within the Massachusetts Bay Transportation Authority service district, which were transferred to the Boston and Maine Railroad, under contract to the MBTA, in March 1977[30]). Except for MARC, the transit authorities purchased the track and right-of-way on which their commuter operations ran, leaving Conrail freight operations as a tenant.

Breakup 1997–1999

With Conrail's increasing success, they decided to merge the company with another railroad, so they approached CSX Transportation about buying the company, this however drew the attention of Norfolk Southern Railway leading to a takeover battle between the 2 railroads. In 1997, however, the two railroads struck a compromise agreement to jointly acquire Conrail and split most of its assets between them, with Norfolk Southern acquiring a larger portion of the Conrail network via a larger stock buyout.[32] Under the final agreement approved by the Surface Transportation Board, Norfolk Southern acquired 58 percent of Conrail's assets, including roughly 6,000 Conrail route miles, and CSX received 42 percent of Conrail's assets, including about 3,600 route miles.[33]

The buyout was approved by the Surface Transportation Board (successor agency to the Interstate Commerce Commission) and took place on August 22, 1998. Under the control of lawyer-turned CEO Tim O'Toole, the lines were transferred to two newly formed limited liability companies, to be subsidiaries of Conrail but leased to CSX and Norfolk Southern, respectively New York Central Lines (NYC) and Pennsylvania Lines (PRR). The NYC and PRR reporting marks, which had passed to Conrail, were also transferred to the new companies, and NS also acquired the CR reporting mark. Operations under CSX and NS began June 1, 1999.[34]

In three major metropolitan areas – North Jersey, South Jersey/Philadelphia, and Detroit – Conrail Shared Assets Operations continues to serve as a terminal operating company owned by both CSX and NS. The Conrail Shared Assets Operations arrangement was a concession made to federal regulators who were concerned about the lack of competition in certain rail markets and logistical problems associated with the breaking up the Conrail operations as they existed in densely populated areas with many local customers. The smaller Conrail operation that exists today serves rail freight customers in these markets on behalf of its two owners. A fourth area, the former Monongahela Railway in southwest Pennsylvania, was originally owned jointly by the Baltimore and Ohio Railroad, Pennsylvania Railroad and Pittsburgh and Lake Erie Railroad. Conrail absorbed the company in 1993, and assigned trackage rights to CSX, the successor to the B&O and P&LE. With the Conrail breakup, those lines are owned by NS, but the CSX trackage rights are still in place.

Locomotives

Conrail was divided between Norfolk Southern Railway and CSX Transportation in 1999, with all remaining locomotives having been repainted, but ex-CR units can be spotted. CR units had similar features such as "Bright Future" blue paint, flashing ditch lights, and Leslie RS-3L horns. Another key spotting feature is ditchlights mounted under the locomotive's front deck. This is a preference different from Norfolk Southern, who orders their locomotives with the lights above the deck. Marker lights, or class lights, were also a preference of Conrail. Most Conrail engines still have marker lights on CSX, while NS opted to remove them. All Conrail locomotives that went to CSX were re-painted into CSX colors. All of the Conrail units owned by NS have been either repainted or retired, as the last unit in 'Big Blue' being NS 8312, was retired. Conrail was the only railroad to receive EMD SD80MACs (the Chicago North & Western were originally supposed to receive SD80MACs with marker lights, but when that railroad merged with Union Pacific, the order was rescinded) and were separated evenly between CSX and NS. Conrail had a different scheme for these locomotives and also the SD70MAC, with a large white, cone shaped line on the front, bearing "Conrail Quality". The SD70MACs weren't fitted with marker lights, as it would be useless when given to NS and CSX. This goes along with the standard-cab SD70, Conrail's final order of locomotives, as they were in Norfolk Southern's preferred numbering (the 2500 series).

In early 2015, the remaining 12 ex-Conrail SD80MACs owned by CSX, were purchased by Norfolk Southern, and renumbered 7217-7228. Most have been repainted, and currently all of them still have red marker lights intact, but it is unclear whether or not they will be removed.

Signals

Since Conrail acquired many separate railways, and the North American railway signalling system is not standardized, operators needed to qualify on as many as seven different signalling systems. The varying systems include, but are not limited to, the PRR position light signals, the NYC searchlight signals and tri-light signals, and the EL tri-light signals. The NYC tri-light was adopted as Conrail's systemwide standard for new signal installations. Most of the existing technologies were defined by the Northeast Operating Rules Advisory Committee (NORAC).[35] Conrail had its own, unique tri-light signal modernization program that was applied to many routes. Today, most Northeastern railroads associated with former Conrail assets are working towards standardization of all systems as vertical color light signals. Meanwhile, Amtrak uses a modified version of the PRR position light signals called "Position Color Lights".

Preservation

The Conrail Historical Society, Inc., is a 501(c)(3)non-profit organization based in Marysville, Pennsylvania. The society aims to preserve and restore equipment, items pertaining to, and photographs of Conrail, specifically and of American railroading in general. As of 2015, the group publishes a quarterly magazine and a calendar, as well as other occasional mailings. Previous conventions have been held in Altoona, Pennsylvania, Philadelphia, Cleveland, and Warren, Ohio. More recent preservation activities include completion of the cosmetic restoration of caboose 21165 and significant metalwork and floor-replacement on gondola 67257.

Heritage unit

To mark its 30th anniversary, Norfolk Southern painted 20 new locomotives with the paint schemes of predecessor railroads. The first, on March 15, 2012, was GE ES44AC #8098 in Conrail blue with the "can opener" logo.[37][38]

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